DHX acquisition of Cookie Jar increases exposure on Netflix, says Byron’s Goff

DHX Media today acquired Cookie Jar Entertainment, the largest supplier of children’s programming to Netflix. This morning, DHX Media (TSX:DHX) announced it had entered into a a definitive agreement to acquire the business of Cookie Jar Entertainment. The move will create Canada’s largest children’s entertainment company.

DHX will pay $5 million in cash, issue 36 million shares, and assume $66 million of CJE’s debt.

“The acquisition of Cookie Jar is a transformational event for DHX that will significantly enhance our scale and our growth opportunities,” said Michael Donovan, chief executive officer of DHX. “Through this combination, we will strengthen our portfolio of brands, global reach, management depth and our position in the rapidly emerging digital distribution channels to become the market leader.”

Byron Capital analyst Rob Goff agrees that DHX’s acquisition of Cookie Jar is transformative. He points out that the combined entity will boast a library of 8,550 half hours of content, and will result in a situation in which revenue synergies could exceed cost synergies. In a breaking brief to clients this morning, Goff reiterated his BUY rating and $1.65 target on DHX Media.

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Founded in 2006, DHX Media boasts a library of over 2,525 half-hours of film and television, including Animal Mechanicals, Rastamouse, Angela Anaconda and the hit Yo Gabba Gabba! The company has quietly become a leader in kids TV. DHX has signed more than 1,200 license deals with over 150 children’s networks worldwide, including the BBC, Cartoon Network, PBS, The Disney Channel and Nickelodeon. On May 14th, DHX reported its Q3, 2012 results. Revenue was up 35% to $16.6-million from $12.3-million in the same period in 2011.

Toronto-based Cookie Jar, formerly know as Cinar, was founded in 1976 and owns titles such as Caillou, Inspector Gadget, Kung Fu Dino Posse and Johnny Test.

Goff points out that CJE is the leading provider of children’s content into Netflix, and controls Cookie Jar TV, a weekend block on CBS, which he thinks could be leveraged into greater exposure for DHX’s existing library.

Shares of DHX Media closed today up 23.7% to $1.41.

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